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  • Skilled migration: the perspective of developing countries¤

    Frédéric Docquiera;b and Hillel Rapoporta;c;d a CADRE, University of Lille 2, France

    b IZA, Institute for the Study of Labor, Germany c Department of Economics, Bar Ilan University, Israel

    d Stanford Center for International Development, Stanford University, USA

    Abstract

    In this paper we focus on the consequences of skilled migration for source (developing) countries. We …rst present new evidence on the magnitude of the "brain drain” at the international level and then discuss its direct and indirect e¤ects on human capital formation in developing countries in a uni…ed stylized model. Finally we turn to policy implications, with emphasis on migration and education policy in a context of international migration.

    ¤The …rst author thanks the World Bank for …nancial support (Contract PO. 7620076 - UPI 269656). We thank Arye Hillman and Maurice Schi¤ for helpful comments. The usual disclaimer applies. Corresponding author: Frederic Docquier, CADRE, University of Lille 2, 1 Place Deliot, 59024 Lille, France. Email: f.docquier@skynet.be.

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  • NON-TECHNICAL SUMMARY In this paper we focus on the consequences of skilled migration for

    developing countries. We first summarize the recent findings of Docquier and Marfouk (2004) on the international mobility of the highly-skilled; their estimates, based on immigration data collected from nearly all OECD countries in 1990 and 2000, show that the “brain drain” has gained in magnitude over the period covered, but that substantial differences remain across regions and income groups.

    The central section presents the theoretical arguments of the ''new'' and ''old'' brain drain literatures in a fully harmonized framework. We first review the early brain drain literature, which tends to emphasize the losses to those left behind. We then ask whether the traditional detrimental effects stressed in the early literature may be offset by potentially beneficial effects emphasized in more recent contributions (remittances, return migration, creation of trade and business networks, and possible incentive effects of migration prospects on human capital formation at home), and provide empirical evidence on these different channels where available. According to most existing studies, it is unlikely that remittances, return migration or other ways through which highly-skilled emigrants continue to impact on their home country's economy are significant enough to compensate sending countries for the losses induced by the brain drain. By contrast, cross-country comparisons provide supportive evidence that migration prospects foster domestic enrollment in education. Additional investigations are clearly needed to assess the net effect of emigration on human capital formation at home.

    The last section explores some of the policy implications of the analysis, with emphasis on migration policy and education policy. We show that from the perspective of developing countries, the "optimal" emigration rate for the highly-skilled is zero where liquidity constraints are strongly binding and then conforms to an inverse-U shape pattern with respect to the country's level of development. As to education policy, we discuss the role of taxes and education subsidies when human capital is mobile internationally and show how optimal policy responses to such mobility are affected by the parameters of the model.

  • Contents 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 How big is the brain drain? . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3 Theory and evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.2 The traditional view . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.3 Temporary migration . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.4 Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.5 Remittances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.6 Network e¤ects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

    4 Policy implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.1 The optimal rate of migration . . . . . . . . . . . . . . . . . . . . . . 29 4.2 Education policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

    5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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  • 1 Introduction The current wave of economic globalization has opened a window of opportunity for human capital to agglomerate where it is already abundant and yet best rewarded, i.e., in the most economically advanced countries. This natural tendency has been strengthened by the gradual introduction of selective immigration policies in many OECD countries since the 1980s. What started as an e¤ort to increase the "qual- ity” of immigration in countries such as Australia or Canada has developed into an international competition for attracting the highly educated and skilled. Together with traditional self-selection e¤ects on the supply-side, this explains the overall ten- dency for migration rates to be much higher for the highly-skilled. While the world export/GDP ratio has increased by 51 percentage points between 1990 and 2000 (WTO, 2004), the total number of foreign-born individuals residing in OECD coun- tries has increased in the same proportion (51%) over that period, a …gure that jumps to 70% for highly-skilled migrants against only about 28% for low-skilled migrants (Docquier and Marfouk, 2004). What are the consequences of this human capital ‡ight for sending (developing)

    countries? In a world of perfect competition with complete markets, the free mobility of labor would seem to be Pareto-improving: migrants receive higher incomes, natives in the receiving countries can share the immigration surplus, and remaining residents in the sending countries can bene…t from the rise in the land/labor and capital/labor ratios. However, in the case of highly-skilled migrants, such labor movements also generate a number of ”externalities” that have to be factored in. First, skilled mi- grants are net contributors to the government budget and their departure, therefore, increases the …scal burden on those left behind (…scal externality). Second, skilled labor and unskilled labor complement one another in the production process; in a context of scarcity of skilled labor and abundant unskilled labor, as is the case in developing countries, skilled labor migration may have a substantial negative im- pact on low-skilled workers’ productivity and wages (intragenerational spillover) and increase domestic inequality. Third, human capital depletion through emigration would seem to impact negatively on a country’s growth prospects, inasmuch as hu- man capital formation is now viewed as a central engine of growth (intergenerational spillover). Fourth, as demonstrated in various new economic geography frameworks (e.g., Fujita et al., 1999), skilled labor is instrumental in attracting FDI and fostering R&D expenditures (technological externality); hence, the mobility of human capital is contributing to the concentration of economic activities in speci…c locations, at the expense of origin regions. On the other hand, high-skill migration may also induce positive feedback e¤ects

    as skilled emigrants continue to a¤ect the economy of their origin country. Such possible feedbacks include migrants’ remittances, return migration after additional skills have been acquired abroad, and the creation of networks that facilitate trade, capital ‡ows and knowledge di¤usion.

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  • Given the many channels involved, an evaluation of the exact impact of the mi- gration of skilled labor (the ”brain drain”) for source countries is a very complex task. As we shall advocate in this paper, most of this impact may ultimately be captured through the e¤ect of emigration on the composition of the labor force, that is, on the stock of human capital per worker remaining in the home country. Until recently, empirical attempts in this direction have been hampered by the lack of harmonized international data on migration by origin country and education level. In the absence of such empirical material, the debate has remained almost exclusively theoretical. The early ”brain drain” literature of the 1970s emphasized its negative consequences for those left behind. The main conclusions were that skilled emigration contributes to increased inequality at the international level, with the rich countries getting richer at the expense of the poorer countries. By contrast, more recent contributions ask whether the traditional negative e¤ects of the brain drain stressed in the early lit- erature may be o¤set by possible bene…cial e¤ects arising from remittances, return migration, creation of trade and business networks, and possible incentive e¤ects of migration prospects on human capital formation at home.1 In particular, a new brain drain theoretical literature has emerged around the idea that migration prospects may well foster human capital formation in developing countries even after actual emigra- tion is netted out; this literature studies the theoretical conditions under which the overall e¤ect of the brain drain may be positive (i.e. brain drain reduces international inequality). During the last two decades, there has been a signi…cant increase in the magnitude of the brain drain. Howeve